Outdated Bollywood Style

I wonder what is the source of Krittivas’s article. I wonder how many prostitutes these money lenders have – from their 2,00,00,000 farmer-borrowers. Which era are you in, Bro. Krittivas? Apparently, the ghost of East India Company is alive, well and kicking. Is this the kind of grovelling that has to be done to be a part of Reuters, Krittivas? Friend Krittivas is reading a lot of colonial era propaganda – and seeing old Bollywood movies.

A financial newspaper, The Mint,dutifully carries this Reuters article. Published jointly by The Hindustan Times and The Wall Street Journal, The Mint, regularly carries such bloopers. In yet another article that the Mint carried, for instance, writes how Indian “cities began suffering chronic milk shortages soon after independence in 1947” – implying that colonial India was the land of milk and honey. This kind of editorial blindness nearly makes me believe that the Indian Government got it right with the previous policy of excluding foreign media.

Some Stats About Money Lenders

There are 34,000 money lenders – and they have lent money to more than 2,00,00,000 farmers. They account for nearly 30% of the rural credit flows – and more credit than all the nationalized banks put together. They charge between 18% to 36% p.a. interest generally. Lesser than what most ‘educated’ credit card users pay – and what ‘modern’ banks charge their English-speaking customers.

20th Century Vilification

Later during the Great Depression and the so-called ‘Indian currency crises’, Britain was extracting gold from Indian peasants, to overcome its own problems. For British loot to happen and to make their policies effective, they needed to leave the peasant without options. The only way to do that was to curb the money lender. To achieve this aim, between 1925-1940, enquiry commissions were created – and propaganda ‘reports’ flooded the system.

April Fool Joke – The RBI

On April 1st, 1934, while the ‘Squeeze India’ campaign was under execution India’s banking authority was set up – choreographed by Montagu Norman, Neville Chamberlain, Winston Churchill (some sickness … some racism) Lord Willingdon. From that April Fool’s day till now, RBI’s character has not changed. It remains isolated, out of touch with the India – and looks at India through colonial viewing glasses.

Legalized Harassment & Extortion

Debt Conciliation Acts were passed between 1933 and 1936 by the governments of Assam, Bengal, Central Provinces and Berar, Madras and Punjab; the Punjab Regulation of Accounts Act (1930) and the Debtors Protection Acts of 1935 and other such burdensome laws buried the money lender in mountains of paperwork and licences. These laws required money lenders to comply with extensive and prolonged compulsory licensing and registration – and extensive recording of transactions and accounts.

What these laws achieved was what was desired – a license for police and other ‘inspectors’ to start an extortion racket from money lenders (these days called corruption). A bureaucrat from colonial Punjab, Malcolm Darling (1925) shedding crocodile tears stated “the Indian peasant is born in debt, lives in debt and dies in debt” became a by line for tarring the money lender – while the cause was extractive, colonial revenue practices.

On October 27th, 1931, the Ramsey Macdonald led “National” Government (Conservatives and Liberals coalition, fearful of the rising Labour Party) in Britain won a huge majority of 554 MPs of 615. The economic crisis of September (misnamed as the Indian Currency Crisis), ensuing Depression era problems in the US, the Weimar Republic problems – and other issues pushed this ‘National’ government to ram through a series of measures (page 130-131) that depressed silver prices, inflated gold prices and raised interest rates in India.

These credit experts can become low cost credit delivery mechanisms – which will revolutionize Indian agriculture. Will Indian planners grow out of their colonial moulds? Will Indian legislation go native? Sooner the better.

What Can The Money Lenders Do?

Under generations of persecution, extortion and discrimination has blunted the organizational capability of the ‘native money lender.’ He needs to look at himself afresh – and exploit business opportunities and use his knowledge of the Indian financial ‘consumer.’

A simple outline of an action plan for the money lenders to reclaim their position can be as follows: –

1. Incorporate a holding company.

2. Contribute one lakh rupees capital per member – with 34,000 members.

3. Create a paid up promoter capital of Rs.340 crores – and an IPO for 660 crores.

4. Obtain RBI licence for a rural bank with this paid up capital of 1000 crores.

Even a conservative estimate of Rs.1.00 crore lending, guaranteed by these money lenders can inject Rs.34,000 crores of investment in the agricultural economy in India. SEBI can be co-opted to create appropriate supervisory and oversight measures.

Post Script – The source of Krittivas’s article

It is 6 months and Krittivas has not seen it fit to give sources or details of his dubious charges. So, let me give the details. This entire story of prostitution of wives to money lenders was a colonial idea that the British plagiarised from a very successful French Emile Zola novel, Germinal (1885).

Of course, most of Zola’s work was propaganda for the Socialist causes that were dear to him. The Vatican banned Germinal – and proscribed its reading by Catholics. India’s vernacular press fighting for survival had no sources to overcome this propaganda. Indian English press was, of course, under colonial domination. When Emile Zola died in 1902, he was given a State funeral and the crowd chanted ‘Germinal, Germinal’.

Does this give you some idea, Bro.Krittivas, on how much propaganda we are targetted with, before you start hitting the keyboard.

21 Responses

There are fundamental problems in both sides of the argument. The vilification and the defense.

Both are premised in an incomplete knowledge of the problem – therefore the solution.

An important argument is missing – the context and history. The following might help…

—

The arrival of the East India Company and their strengthening in the eighteenth century meant that trade and capital became centralized. While the EEIC’s monopoly slowly became absolute at the top, at the middle and lower rungs of trade and capital – the EEIC needed Indians who were part of the policy.

Trade in India, prior to the EEIC was highly competitive, with very little power in the hands of merchants. Weavers, who were the backbone of the economy, used the deposit from the merchants for purchasing the raw materials. If over the few weeks of delivery, the prices of the raw materials fluctuated, the weaver could cancel the contract and return the deposit.

Similarly, monetary policy in India was never the monopoly of the rulers. The rulers could mint the money, but they did not prevent others from minting competing currencies.

The English introduced policies in India, that were tried and tested in England in the 1700s. Merchants in England had lobbied the parliament to shift massive power in the hands of the merchants. If an English weaver failed to deliver on time and the right price, he could flogged in public. Multiple “offenses” were punishable by death.

With the EEIC at the top, the Indian merchants, whose final customer was the EEIC, now wielded higher power than ever before. The weavers and other industry needed the merchants for the deposits for manufacturing. Without having the power to cancel contracts the power of the merchants, with the implicit backing of the EEIC grew enormously. The merchants became the lenders.

The nineteenth century saw a complete collapse of the Indian manufacturing. Opium replaced cotton on at least 600,000 acres of land in northern and central India. Farmers, weavers and other manufacturers, with little or no source of reliable income streams, became more indebted to the merchants/lenders. This resulted in the largest land grab that India had ever witnessed. The priests played along, highlighting or even inventing the “stories” of misery and redemption, in Indian mythology as proof of divine vagaries. Not only did India’s economic system collapsed, so did the the dynamic social order, which began to crystallize into rigid hierarchies. The dynamism of Indic thought that flowed through the minds of people, began to form pools of stagnation. Today, only a trickle remains.

India witnessed this strange shift of economic power into the hands of merchants for the first time. India’s merchants and money lenders, witnessed a surge in their politico-economic power in two phases. First in the mid 1700s and then in the mid 1800s. Both coincide with the increasing dominance of the English political power in India. This was the primary model of India’s collapse in northern and central India. Southern India witnessed variations of the same theme.

The key issue was the centralization of monetary and trade policies in the hands of the EEIC. After 1858, EEIC was dissolved, but the centralization of power remained in the hands of the “government.” This did not disrupt the continuity of a system that worked against India’s free markets in trade and industry.

Even after the English were thrown out, the policies did not change. The economic power remained in the hands of the few.

Britain and other western countries, had to eventually deal with their oppressive laws that were passed. They invented concepts such as socialism, marxism and communism to fight the “capitalistic system.” “Liberal” policies were invented so that the power of the “capitalists” could to be “curbed.”

While a pre-English India did indeed have large “capitalists”, who even served as banks for kings, they were not the “capitalists” in a western sense. Their power was implicitly curbed in a system that for thousands of years had put automatic limits on transgression of power. India’s economic systems never allowed for “capitalists” to exert political influences, since neither money supply nor trading were ever in the jurisdiction of any king. Indians were familiar with the saying, “Raja bane vyapari, praja bane bhikhari.” India’s historical free markets, never saw the need for “liberals” because the “capitalists” did not have politico-economic power. India’s polity was never a victim to the “left” vs. “right” paradox. The west never understood that in the context of European history, the phrase “free-market capitalism” is an oxymoron. The west never had free-markets, since the power was always with the capitalists.

—
Your liberal “solutions” are largely along the lines of how the “west” has “dealt” with this imbalance of power.

Instead of creating true free markets, the west is stuck, knee deep in a statist paradigm, which had done little to limit the political power of the capitalists. Meanwhile following the “liberal” policies from the 1950s and onwards, India is neck deep in this pile. India can try of change the system of tweak it.

The root of the problem was not the money lenders. They simply took advantage of a messed up system. Bad systems propagate bad risk-reward characteristics. Bad systems move power into the hands of the few who create cabals that become self-sustaining.

That is fundamentally different than the tautology “that people always do what maximizes their profits.” Which was not only true in a pre-English or a pre-Mughal India, but was the basis for India’s success. What was unique about India was its polity, that created a system did now allow for a concentration of power with the few.

What needs healing is the system. A system that eventually eliminates the collective hold that different groups have over different aspects of the economy.

The healing can only begin when people realize that their present status in society and that of their “collective” ancestors, if they ever even existed as a group (I claim they did not), was dramatically different than what history books offer. As long as there is a misplaced sense of “eternal” domination or servitude, a system cannot change.

This concept that somehow India’s pre-English and to some extent pre-Mughal past was always as messed up as it is now is the darkness that India needs to cone out from. Only when people see their own history with clarity, will the future with a different possibilities become feasible. These possibilities do not need to replicate India’s past but understand and respect it.

I claim that this would be nearly impossible in any other country. India might just be able to figure it out.

[…] Parallel Great Depression era problems in the US, the Weimar Republic problems – and other issues pushed this ‘National’ government to ram through a series of measures (page 130-131) that inflated silver prices, depressed gold prices and raised interest rates in India. The Indian rupee was pegged at a high exchange rate vis-a-vis the sterling. Indian exports crashed. To ensure that Indian farmers had no options, Indian money lenders were regulated and licensed into paralysis. […]

[…] also pointing out, Mr.Shukla, that urban India hogs all the infrastructure investments? Or that traditional banking (in the form of money lenders) has been done to death in the rural areas – and ‘modern’ urban banks do not go the countryside. Or that the […]

[…] a ‘money famine’ needed by colonial British masters. From that April Fool’s day till now, RBI character has not changed. RBI resorts to creating these money famines every few years – even today. The last RBI ‘money […]

[…] which are more cost effective and require less bureaucracy. RBI has (more than the British could) ground the traditional Indian finance sector into obscurity – by blocking access, creating entry and finally procedural […]

2. Capital availability in India has improved from the 1970’s to now – as has credit delivery.

3. Based on personal knowledge, I can say that ‘large’ ticket loans (between Rs.1,00,000 and upwards) get a rate of between 18%-30% today.

4. Small ticket loans (between Rs.500-5000) for short duration of 1day-1 week attract the 100%-200% rate.

5. If we are to put all these loans into one bucket (bad idea), interest rates will be as follows. A weighted mean will be close to 24%-30% rate, the modal value may be 100% and the median value may be between 60%-75%.

6. Getting these variations to converge will mean removal of supply constraints and ending the monopoly of the fractional banking system.

7. By ‘risk loans’, I presume the writer’s mean these small size, short duration, un-collateralized loans.

8. Any ‘modern’ bank also does the same thing for small ticket loans – except it breaks up the ‘return’ under many sub-heads, obfuscating the real lending rate.

>>”Moneylenders charge between 18% to 36% p.a. interest generally”
>>”I think it’s more likely to be 200-300% a year actually”

This is silly.

In the current system – capital power has shifted dramatically and the interest rates – when market driven – depend entirely on the demand and situation.

From a situation I know personally – a vegetable retailer on a hand cart – borrows Rs. 100 in the morning – buys vegetables from a wholesale market yard and then generally makes about Rs. 200 or so during the course of the day and returns Rs. 120 to the lender at the end of the day. That’s about 20% per day.

The lender lends to several such people… his logic is that even if one of the five vegetable retailers runs away with the money – he has broken even…

…from the vegetable retailer’s perspective – the 70-80 rupees he makes is enabled because of the loan in the first place – so he is willing to bear the high cost of capital.

A perfectly fair game – where markets are determining the interest rate.

So for those who can still see a problem in this situation – this is really not a question of problem with the markets – but a problem with the system which has made capital as a basis for the economy.

You can call it predatory… you can blame the lender… you can scream foul play… but all that is irrelevant – because the problem is not the money lender – but the system.

…in a flawed system – individuals will become predators… the solution is to fix the system – whether or not the individuals have become “predators.”

“But to eliminate capital…” You misunderstood my response and the above is a misquote.

I am saying is that capital should not be the “basis” of economy… not “eliminate” it.

Consider capital is like a weapon. Pacifists will say we should eliminate all weapons from this planet… which is as ridiculous as saying that we should remove capital form this planet… and as with weapons – it is not the gun that kills, but the person who shoots who is responsible.

But the analogy ends there.

Capital will always remain distributed if there is a balance of power in polity which prevents any form of interference in the markets. “Balance in power” – political power, economic power and theosophic power.

These three functions in an organized society should never be allowed to collude with each other or amongst each other – yet the competition should always be on a certain “constitutional” basis. Any form of aggregation of power – will by definition be a threat to this balance… any form of integration within the value chain – will by definition be a threat to this balance…

What provided this “balance” in India’s pre-Islamic history was “Dharma.” Not the “personal” Dharma – but a systemic Dharma.

The west’s attempts at the separation of this power have never gone beyond “church” and the “state” – which is an attempt to separate the political power from the theosophic power. In Marxism or Fascism, the “state” has all the power (political and economic) – overtly… versus in “Capitalism” – as C. Rangarajan demonstrates – there is a collusion between the so-called “capitalists” and the state – to create legal structures to ensure prolonged power with the entrenched.

India – today – has picked a pretty bad combination of both Marxist ideals being used by the so-called capitalists to create a Frankenstinian – Marxo-Crony-Capitalistic system. India not only abandoned “Dharma” – but it embraced an Asuric combination of a political framework from the west.

The solution?

The restoration of a balance of power can happen – only when the constitution looks down upon any form of economic-integration both vertically or horizontally in the economic value chain. Like “Dharma” put restrictions on the power wielders, a new Indic constitution will have to focus on ensuring the economic, personal and political freedom from the political, economic and theosophic power wielders. However, any attempts to create such a polity – will undoubtedly – be met with stiff resistance from the entrenched. Therefore a prerequisite is to create an intellectual class, without any power, that plays and advisory role to both the political power wielders and the economic power wielders to enable such a separation. Though difficult to achieve – India has demonstrated this in the past – therefore not impossible to achieve. Once the framework is established – the transformation in the politico-legal framework can enable the creation of a “dis-integrated” value chain. If not sabotaged – a stable system with “balance” can transform India over 2-3 generations.

[…] – Indian agriculture system was in a comatose state. India had not yet recovered from the Great Bengal Famine when another crisis developed. Within a year of the Indian Republic, the food situation in India […]

I humbly request from you a loan or even a donation
MY MOST IMPORTANT REQUEST

I have requested assistance from my Government but they were hesitant and said to me that they cannot fund such a project, but they are going to spend over a billion dollars to host the summit of the americas in april 09
Urgent assistance required SCHOOL FOR CHILDREN WITH DISSABILITIES I humbly beg for you kind assistance of granting me a donation or a loan facility of the amount of at least $500,000.00USD , or anything you can give each $1.00 goes a long way ,so that I could start with purchasing the plot of land and start organizing the contractors to commence with work in the building of a SCHOOL FOR THE PHYSICALLY AND MENTALLY CHALLANGED, in which our government has declined their assistance owing to the fact that they say 125 disabled and special children are not enough for their funding.
I need an answer so as to start the project for the children, I again ask beg in the names of the ones who are unable to speak, fight, stand , or even champion for their cause hence the reason I am pleading for them. I am asking for whatever assistance that can be granted if possible, I am asking is to be granted a Loan Facility to help the less fortunate Disabled in our society , an answer will allow me to commence with work since I only have 6 weeks before school reopens, the location where the school were our landlord before the Christmas party handed us an eviction notice to vacate her premises before the end of the year 2008
Since then I have online applied for grants LOANS but no one seemed to care I was even scamed some $250,000 from some money lenders in Nigeria and certain parts of Africa and the UK
when we approached the ministry of housing the just told us no I think its probably because of my name
Please assist us in granting a LOAN FACILIYTY or a DONATION as we could start commencing work before the year ends
I beg one last time in the for the ones who brings tear to my eyes and a special joy to my heart, seeing what they can accomplish and if push harder they can do so much better.
All I ask is to be granted a loan facility I WILL ENSURE THAT IT WILL BE PAID WITHIN ITS DUE TIME I have emailed to you all document that you will require PLEASE I BEG YOU FOR THE CHILDREN

The land cost $395,000

The Building. $2,695,000
To furnish. $285,000

To secure building and land. $195,000.

Total $ 3,570,000.00 tt dollars which is a total of

$562,000.00USD, All I am requesting from you is a loan of $ 500,000.00USD I will manage the rest.

Get a 2ndlook on

Email Subscription

2ndlook Blogs

Quicktake focusses more on current events, recent events, reports, media buzz, matters of topical interests. Typically, Quicktakes are shorter than 2ndlook. Sometimes a few Quicktakes, morph into a 2ndlook post.